How overreaching reformers could doom the WTO

Change agents are seeking to advance socioeconomic and climate agendas, but this would only burden trade rules with more hurdles
Any move forward must begin by overhauling the dispute settlement mechanism. Without a trustworthy means to resolve disagreements, WTO rules are merely aspirational

James David Spellman

Published: 5:30pm, 8 Jan 2024

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Trade ministers heading to Abu Dhabi next month for the 13th WTO Ministerial Conference are unlikely to revive the moribund World Trade Organization unless they narrow their ambitions and focus on reworking the trade referee’s core function: dispute resolution.

Time is working against their unwieldy agenda. The window of opportunity will close by spring when US electioneering heats up and China’s eagerness for rapprochement wanes with its economy set to rebound.

Reformers aim to transform the WTO into a formidable tool to advance sustainable development, shore up workers’ rights and mitigate climate change. A mounting complaint, as the German Council on Foreign Relations explains, is the organisation’s failure to “adequately address pressing global challenges such as food security, pandemic responses and climate change”.

Last year, the Cop28 UN climate summit held a special day highlighting how trade must drive climate-smart growth, a first for the conference of parties.

The WTO confronts a global economy that the IMF contends is increasingly fragmented. Trade barriers have nearly tripled since 2019 to almost 3,000 in 2022. Trade restrictions are being added at the highest monthly rate since the WTO started counting in 2015.

The International Monetary Fund projects that protectionism will slow global economic output by as much as 7 per cent in the long term, or some US$7.4 trillion. Global trade contracted by an estimated 5 per cent last year, with South-South trade experiencing the sharpest decrease, according to the United Nations.

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These trends will worsen if WTO reformers, in advancing socioeconomic and climate agendas, burden trade rules with more hurdles. The strife immobilising the WTO will only intensify.

Developing countries want rich nations to eliminate their barriers, especially for agriculture and raw materials. Some decry the widening rich-poor gap and other socioeconomic costs that they attribute to globalisation. The arrogance of national sovereignty is obstructing consensus-building.

New trade conflicts – from transborder digital data flows to intellectual property rights – are multiplying without a widely accepted approach to ensure the WTO’s mandate that trade “flows as smoothly, predictably and freely as possible”.

These difficulties reflect geopolitics. Countries rally behind the WTO when decisions favour their interests, but disparage and ignore its reprimands that don’t. Alliances shift from issue to issue: those favouring free markets for agriculture may align with those seeking industrial subsidies and sanctions against state-run economies. Expedience prevails.

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With countries using trade policies to protect domestic industries critical for national security or to enhance key sectors’ competitiveness, the grounds for multilateral consensus is shrinking. In response, countries are scrambling to strengthen regional trade blocs.

Nothing illustrates better how these realities imperil the WTO than the China-US rifts. In December 2022, China filed a complaint against US semiconductor export controls. Beijing is also fighting US subsidies under the Inflation Reduction Act and Chips and Science Act. China says they violate WTO subsidy rules; the US says they are compliant, attacking instead the lack of transparency in the Chinese state’s support for companies.

Any move forward must begin by overhauling the dispute settlement mechanism. Without a trustworthy means to resolve countries’ disagreements, WTO rules are merely aspirational.

The US, among the most active participants in WTO cases, has frozen the process, frustrated by WTO inefficiencies and judicial overreach. Starting in 2017, it began blocking new appointments to the WTO’s seven-person appellate court. As a result, some 29 appeals remain unresolved.

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Revamping procedures to speed up decision-making and protect both the impartiality and independence of WTO dispute settlement would be a good start, as Boston University research fellows Purvaja Modak and Rachel Thrasher argue. Reformers must first reaffirm the principle that this mechanism is compulsory, impartial and enforceable.

Approval of judges must move from unanimous vote to approval by a majority of WTO members. Adherence to deadlines for judicial decisions could be forced, with more extensive and better articulated rewards and penalties. Rules need to narrow judges’ reviews so opinions are tightly focused. Members must have some means to hold adjudicators accountable without compromising independence. Past decisions must weigh more heavily on judges’ rulings – this would enhance predictability.

All of this means a funding increase to staff the division and address inefficiencies. Unfortunately, the most serious proposal on the reformers’ table ignores changes to the appellate body.

Bending of rules must stop if WTO is to be effective trade forum

Before the judicial review begins, the WTO needs a more exhaustive front-end process that offers members opportunities to both prevent conflict and clear the table of nettlesome disagreements, freeing judges to adjudicate on the most contentious issues. The existing WTO arbitration arrangement has had limited success. Mandating its use within a tight timetable, broadening its authority and adding resources offer promise.

With dispute settlement on firmer ground, trade ministers would find more interest in modernising the WTO. High on that list: more capacity to gather and analyse data so members can better understand the velocity and content of tensions. Carrots and sticks would compel members to be more transparent.

A more robust forum for handling technical questions is needed. Most requests to that forum seek clarification of trade laws, underscoring why members need better training. Partnerships with other global bodies can address socioeconomic and climate change issues.

By focusing on the WTO’s core activities, trade ministers can revitalise the organisation, as the 2022 deal on fisheries subsidies did. This first major WTO agreement in nearly a decade confounded expectations. Trade ministers have an opportunity next month to do the same – if they stay focused on the WTO’s core functions.

James David Spellman, a graduate of Oxford University, is principal of Strategic Communications LLC, a consulting firm based in Washington, DC